RICHARD JOHNSON

Why Mazda is headed in the right direction in U.S., Mexico

Richard Johnson is managing editor of Automotive News.Richard Johnson is managing editor of Automotive News.
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MONTEREY, Calif. -- What with financial losses and job reductions at Mazda North American Operations, Jim O'Sullivan has had a tough year.

"But we are headed in the right direction again," said Mazda's top U.S. executive during the classic car festivities this weekend.

The company swung to a global operating profit in the quarter that ended June 30 and the CX-5 crossover that debuted in the United States this spring is off to a strong start.

"We could use another 20,000 from the factory," O'Sullivan said.

Of course, Mazda's big bugaboo is the strong yen versus the dollar and that is not getting any better.

And O'Sullivan is feeling skittish about the general economy in the remaining months of the year.

"Let's just say that I'm guardedly optimistic about the back half," he said, putting an emphasis on "guardedly."

That is in line with a recent outbreak of cautiousness among industry execs after months of happy talk.

Not only is Europe a huge concern, O'Sullivan says, but U.S. consumer confidence is shaky given the uncertainty over fiscal policy in Washington, D.C., and the return of volatility to the stock market.

But O'Sullivan is unreservedly optimistic about at least one thing -- Mexico.

Mazda broke ground a year ago on its new plant in Salamanca. The steel structure is up and the plant will be turning out Mazda3s and Mazda2s in early 2014.

The company also is building an engine plant at the location.

O'Sullivan says Mazda considered plant sites in the United States before settling on Mexico. But going south of the border was a no-brainer, as the country has free trade agreements with 44 countries.

"The only country in the world with more trade agreements than Mexico is Israel," he said.

Mazda's current U.S. volume does not warrant a factory in this country, but the flexibility to ship vehicles both north and south makes the numbers work in Mexico.

Of course, others are going there, too. Audi has announced plans to build a plant in the country and some say the Audi plant may be located in Salamanca as well.

Sources say BMW has decided to build the 3-series in Mexico.

O'Sullivan says Germans building luxury vehicles in the country is a massive show of confidence in the level of quality Mexican workers can achieve.

What if demand takes off for Mazdas in the United States, Brazil and other export markets -- not to mention in Mexico itself? Can the new plant be enlarged?

That's a question we're accustomed to asking about greenfield plants in the United States. But it's kind of a dumb question where Mexico is concerned.

To answer, O'Sullivan clicked a bit on his iPhone and displayed a screen showing vacant land as far as the I could see.

"This is our property in Salamanca," he said. "So you see we've got plenty of room to expand."

Indeed, so does the entire Mexican auto industry.

You can reach Richard Johnson at rjohnson@crain.com.

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